Condo owners stunned by unexpected end to tax break

When Mark and Lisa Struble bought their Little Italy condo last year, they were attracted by the open layout, proximity to the waterfront — and the promise of a steep property tax break into 2016.

But in July they got a shock in the mail from the city Finance Department: Their tax credit was suddenly gone. And their annual tax bill, which they thought would be around $1,800, had soared to more than $15,400 — a 760-percent increase.

"I was incredulous," said Mark Struble, who moved with his wife from Ohio after she got a job in Baltimore. The tax credit, provided for properties that have been rehabbed, "went into our decision to buy. Then that all evaporated."

The Strubles are among 36 condo owners in Baltimore who received similar surprises with their July tax bills. They found themselves owing thousands more than anticipated after the city removed their 10-year historic credits with little, if any, warning.

City officials say the credits should never have been granted. In the Strubles' case, the units were newly built, the city says, and in other cases the building had previously received a historic credit and was not entitled to another round.

All told, the 36 erroneous credits have cost the city $2.6 million in potential taxes over eight years, officials calculate — money the city says it cannot legally recoup. The city blames the state Department of Assessments and Taxation for the costly errors, while state officials point a finger at city finance officials who issue tax bills.

Whichever arm of government is responsible, says City Councilman James B. Kraft, the fault does not rest with the owners, many of whom bought based on the credit and have government documents spelling out the promised discounts.

Kraft wants the city to honor the remaining years of the credits out of fairness. The affected owners believed they had from two to five years left on their discounts.

"The city and state can fight this out," Kraft said. "Somewhere in here the city or state made a mistake. But it's not the citizen — who bought the house in reliance upon the representation made to them by the city or state. … If anything, these people are victims of incompetence."

The city recently released details on the 36 properties amid a broader debate about tax credit errors that has spurred some City Council members to call for an immediate audit of the city Finance Department. Mayor Stephanie Rawlings-Blake opposes an audit for now, saying changes made by her administration to correct long-standing problems need more time to have an impact.

City officials say state law limits their options when owners receive tax breaks they're not entitled to get. City Hall spokesman Kevin Harris said Rawlings-Blake "continues to review and assess what options might be available to her within the confines of the law that would help frustrated property owners who were given inaccurate information by the state."

He did not offer details.

"This is a challenge, because on the one hand we are succeeding in reforming a broken system by identifying these errors but on the other hand owners are raising very legitimate questions," Harris said in an email. "Taxpayers deserve to know on the front end what their tax obligations will be, and the administration's reforms are actively working to provide a system that gives them that certainty."

Because the city's Billing Integrity Unit caught the errors, he said, the city avoided losing even more revenue. Letting the credits go the full 10 years would cost another $1.4 million, according to city officials.

At a Washington Boulevard address in Ridgely's Delight, six condos had received the credits, but only four had been rehabbed and were entitled to the credits, according to city officials.

Ten more credits went to condos in a Federal Hill building even though it had already received the credit for a full term.

Among the Federal Hill owners is Marie Blackburn. She has worksheets from the state assessments agency showing the historic credit on her unit would last through the 2017-2018 tax year.

She thought there had been a mistake when her tax bill this year increased to around $6,000, more than five times the $1,100 she expected. Months earlier a city employee had called her to say her credit had been removed, but she did not believe it.

Blackburn rents out her condo, part of the Federal Hill Lofts in the 1000 block of S. Charles St., and fears she'll lose her tenant. The $1,900 a month she charges no longer covers her expenses, so she says she must raise the rent and might have to sell the condo.

"I'm badly in the hole," said Blackburn, who lives in Baltimore County. "They should come up with a phase-in plan of some sort for us. If indeed it's supposed to be over, don't end it abruptly. Maybe give us a couple years to phase in."

A majority of the historic credits in question across Baltimore went to 24 condos at the Canal Street Malt House, a mix of rehabs and new units built in 2006 on the eastern edge of Little Italy.

The city says the 13 renovated units along Fawn Street were entitled to historic credits, and those remain in effect. But the city says the state mistakenly granted the breaks to 24 newly built units, including the fifth-floor penthouse that the Strubles bought last year for $697,000.

Brent Reynolds, who helped develop Canal Street Malt House, said he thought the new units on Bank Street and Central Avenue would receive a different break — a five-year tax reduction for newly constructed homes. That credit would have given these owners a smaller discount.

"I'm somewhat surprised a glitch of this nature happened," Reynolds said, recalling that the development drew a lot of attention from city development and preservation officials.

At a recent City Council hearing, officials displayed a 2006 letter to Reynolds from the city's Commission for Historical and Architectural Preservation listing the 13 rehabbed units as certified for the break. They presented a second letter from 2006 in which the state assessments agency told the owner of one of the newly built condos that he would get the 10-year credit.

To the city, the letters show that the state erred by applying the credit to every condo, new and old.

But Robert E. Young, director of the state Department of Assessments and Taxation, or SDAT, told council members that "we don't believe we got clear information from" the city preservation office on which units qualified for the tax break.

And Owen C. Charles, Young's deputy, said in an email to The Baltimore Sun that ultimate responsibility lies with the city Finance Department, which he said calculated and applied the historic credits to tax bills based on values provided by the state. "SDAT defends its record and does not believe it is responsible for granting of the credits on these units," he wrote.

Harris acknowledges that better communication between city preservation and finance officials could have revealed the invalid credits quickly — before the city lost out on years of tax revenue it can't now collect, and before owners bought based on assurances the credits would last a decade.

Harris says city officials have been working to automate the tax credit system, a change he said would "significantly reduce" the likelihood of future errors.

By the time the Strubles went home-shopping last year, the historic credit on the penthouse condo had been in place for seven years. Sharon Slevin, a Realtor with Prudential Homesale YWGC Realty, listed the condo for the owner, who she said had "all the documentation" for the credit.

That explains why the condo listing — in addition to hailing the "fabulous walk-in closet, gourmet kitchen, vaulted beamed ceiling, hdwd floors and 2-car garage parking" — ended by trumpeting that the taxes would be frozen "for 3 more years with HISTORIC TAX CREDIT!"

Mark Struble, a software tester, says he and his wife love their home and neighborhood. But the tax spike has hurt, he says, especially with a daughter in college: "We were completely blindsided."

2011: A Baltimore Sun investigation finds that hundreds of homeowners wrongly received homestead discounts limited to owner-occupants, costing the city more than $700,000 in one year.

2012: The Sun reports that errors by state officials inflated historic tax credits for some commercial buildings by more than $1.5 million over time.

2013: City informs 315 owners that their property tax bills have risen because they had been getting excessive historic credits caused by state calculation errors. State denies blame. City revises a majority of the 315 bills, with some owners' credits restored to previous levels.

2013: The Sun finds that the city has underbilled three commercial properties by more than $700,000 due to erroneously calculated Enterprise Zone tax credits.

2013: City says 36 condos received historic credits that should not have been granted, costing city $2.6 million in potential property tax revenue over eight years.

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